New year, new claims: Preparing for surge in COVID-19 liability litigation
Here are a few potential coverage issues that could arise under CGL policies that are called upon to respond to pandemic-related lawsuits.
Courts are awash in coverage litigation concerning whether first-party property policies afford coverage for business interruption claims arising out of the pandemic. Positive diagnoses for COVID-19 in the U.S. now regularly exceed 200,000 per day, and daily fatalities attributed to the virus have at times exceeded 3,000. It seems only a matter of time before plaintiffs’ attorneys start pursuing claims seeking damages on behalf of those who have experienced severe illness (or alleged wrongful death) because of the virus, in particular from business and premises owners.
The liability theories could be wide-ranging. For example, it might be alleged that a business or premises owner failed to enforce a mask-wearing policy, failed to limit the number of customers or visitors, failed to clean the premises after learning someone at the premises tested positive, and/or failed to adequately ventilate. Once such claims are asserted and lawsuits filed, parties and their liability insurers could be faced with determining whether there is a duty to defend.
Such claims and lawsuits will undoubtedly generate disputes over the nature and extent of a party’s obligation to protect workers and invitees and whether there is sufficient evidence of causation to warrant a verdict. Nevertheless, even putting wrongful death actions aside, expensive hospital stays and symptoms lasting weeks or months, resulting in lost wages and other expenses, might be claimed. The damages sought could be significant, and the parties might eventually determine that it is necessary to consider settlement. At that point, the obligation of the insurer to indemnify will be placed under the microscope.
Potential COVID-19 coverage issues in CGL policies
A typical Commercial General Liability (CGL) policy provides coverage (indemnity and, frequently, defense) with respect to claims seeking sums the insured is legally obligated to pay as damages because of bodily injury (among others), caused by an occurrence, provided coverage is not otherwise excluded. In cases involving serious illness or death, there might be little dispute that there is bodily injury, typically defined in relevant part as bodily injury, sickness, or disease. However, an interesting issue is presented by putative class actions or mass tort claims by individuals who were supposedly exposed to the virus at a particular place or time, who all seek compensation for the fear they experienced about contracting the virus and/or a fund that would pay for COVID-19 testing and treatment if needed.
Given the uncertainty as to precisely how and where the virus spreads, as well as possible variation among how much exposure is required to cause illness in different people, insureds will not necessarily face enormous difficulty in establishing that injury was caused by an occurrence, especially when it comes to showing the potential for coverage often required to trigger an insurer’s duty to defend. Nevertheless, it is not a given that the injury was caused by an occurrence, typically defined to mean an accident, including continuous or repeated exposure to substantially the same general harmful conditions. Rather, depending upon the liability theories asserted and the evidence generated, it might be argued that an insured’s failure to take certain precautions rendered it sufficiently likely that others would fall ill that the resulting bodily injury was not caused by an occurrence.
A significant issue that will be presented in almost every COVID-19 liability claim, though, is whether the claim triggers a CGL policy’s so-called pollution exclusion (or, in some instances, whether the claim is within the scope of the insuring agreement of a party’s pollution liability policy). Determining the answer requires analyzing whether the COVID-19 virus is a pollutant. ‘Pollutant’ is often defined as a solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste, or something similar. As of this writing, only a few courts have addressed the issue. However, most of those have concluded that absent express language to the contrary, viruses are irritants or contaminants. See, e.g., First Specialty Ins. Corp. v. GRS Mgmt. Assocs., Inc., No. 08-81356-CIV, 2009 WL 2524613, at *5 (S.D. Fla. Aug. 17, 2009).
Of note, more courts have addressed the issue — arguably similar — as to whether bacteria can be considered a pollutant. Those courts reached diverging opinions. See, e.g., Westport Ins. Corp. v. VN Hotel Grp., LLC, 761 F. Supp. 2d 1337, 1343 (M.D. Fla. 2010), aff’d, 513 F. App’x 927 (11th Cir. 2013) (bacteria not a pollutant); Williams v. Employers Mut. Cas. Co., 845 F.3d 891, 906 (8th Cir. 2017) (bacteria is a pollutant).
But even if a court determines that the virus is a pollutant (or is considering a definition that explicitly includes viruses), some courts may determine that a pollution exclusion still does not apply, reasoning that the pandemic is not “traditional” environmental pollution. Two courts have recently reached this conclusion: the first finding that a pollution exclusion would not apply, and the second finding that a pollution liability policy is not implicated. JGB Vegas Retail Lessee, LLC v. Starr Surplus Lines Ins. Co. (Clark Co., No. A-20-816628-B, Nov. 30, 2020 Ruling) (pollution exclusion does not preclude coverage for losses stemming from the presence of COVID-19); London Bridge Resort LLC v. Illinois Union Insurance Company Incorporated (D. Ariz. No. CV-20-08109-PCT-GMS, Dec. 4, 2020 Order) (pollution liability policy did not provide coverage for insured resort’s revenue loss because the Coronavirus pandemic is not a pollution condition as defined).
Ultimately, whether COVID-19 claims trigger pollution exclusions of CGL policies (or, conversely, are deemed within the scope of a pollution liability policy’s insuring agreement) is likely to hinge upon a jurisdiction-by-jurisdiction analysis of the specific policy language being used.
Other coverage issues are also likely to arise in at least some instances. For example, an employee’s claim against an insured employer could require evaluation of whether it triggers the employer’s liability exclusion, which typically precludes coverage for bodily injury to an employee of the insured if the injury arises out of and in the course of employment by the insured or performance of duties related to the conduct of the insured’s business. The exclusion typically also applies to bodily injury to a spouse, child, parent, brother, or sister of the employee if such bodily injury is a consequence of the bodily injury to the employee. Although the language is typically irrelevant, because the virus is highly contagious, it could prove important here. Other exclusions that could conceivably have relevance are fungi and bacteria-type exclusions (typically included in an endorsement) and virus exclusions (perhaps more frequently found in property policies).
Of course, these are just a few of the potential coverage issues that could arise under CGL policies that are called upon to respond to these claims or suits. In addition, as suggested above, parties might seek coverage under other kinds of liability policies, including pollution liability and workers compensation/employers liability policies. As potential injury litigation over COVID-19 exposure ramps up, it will be critical to watch the creative arguments presented by each side, and how courts resolve these issues.
Jonathan T. Viner (jviner@nicolaidesllp.com) is a partner at Nicolaides Fink Thorpe Michaelides Sullivan LLP, where he focuses his practice on counseling and risk management. He has 25 years of experience serving a domestic and international client base that has come to rely on him for his veteran perspectives and sharp insight into novel and complex insurance coverage issues.
Amy J. Cassidy (acassidy@nicolaidesllp.com) is a partner at Nicolaides Fink Thorpe Michaelides Sullivan LLP, where she focuses her practice on insurance coverage litigation. With more than 19 years’ experience, Amy is a passionate advocate for her clients with a proven track record of favorable settlements, summary judgments, and trial and appellate victories.
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